This start-up wants to do your shopping, get your dry cleaning and more, all for a small fee. But, will it fly?
TIM DEMELLO wants to do your food shopping, pick up your drycleaning, and get your lawn trimmed. There will be a small fee, ofcourse
Executive Summary
COMPANY: Streamline Inc., in Westwood, Mass.
CONCEPT: Provide regular home delivery of groceries and othergoods and services
PROJECTIONS: Revenues growing from $1.1 million in 1996 to $49.7million in 1998
COMPETITIVE ADVANTAGE: Fixed delivery schedule and verticalintegration keep costs low
HURDLES: Gaining consumers' trust and loyalty
The CEO
NAME: Timothy DeMello
AGE: 37
PERSONAL FUNDS INVESTED: $45,000
EQUITY HELD: 40%
SALARY: $120,000
FORMER LIFE: Graduated from Babson College in 1981. Took a jobwith a Boston investment bank but promised himself his own company bynoon on Friday, March 13, 1987. Missed the deadline but resignedlater that afternoon. That Monday, started Wall Street Games, whichgrew to $5 million in sales in less than five years
The Concept. Many entrepreneurs launch their start-ups fromgarages and then move them out. Timothy DeMello's aim is to move hisstart-up into lots of garages and keep it there.
DeMello's company, Streamline Inc., is a variation on an oldtheme: home delivery of consumer goods and services. The differenceis that DeMello thinks he has figured out how to make a profit at it.He claims two advantages for a business model he has yet to scale up.First, Streamline doesn't just deliver groceries. It will pick up anddeliver items like film, videos, and dry cleaning. It will also postcustomers' packages. In other words, DeMello plans to earn more thanjust the slim margins associated with the grocery business. Second,the groceries that Streamline does deliver once a week to a servicebox (consisting of a freezer, refrigerator, and a few open shelves)in each customer's basement or garage won't cost the company as muchas those packed by other delivery services. Streamline will purchasegoods directly from wholesalers and manufacturers, just assupermarkets do, and distribute them from its own 56,000-square-footwarehouse. The idea is to avoid supermarkets' costs while pocketingtheir markups. The company-provided service box is nominally free tothe customer, but Streamline recoups the cost of the box in partthrough a $30 monthly delivery fee. "It's our warehouse, our drivers,our trucks. We own everything," says DeMello. "And we want to own thechannel of sale directly into your home."
Or so the plan would have it.
Background. Back in 1993, before he could get even a nibblefrom venture capitalists, DeMello, who had sold his first start-up,Wall Street Games Inc., just one year earlier, put up $45,000 of hisown money and set out to raise enough cash to test the Streamlineconcept. Starting in 1994, DeMello conducted three separate rounds ofprivate placements and raised $1.7 million from 92 investors--some ofwhom now sit on the company's board of directors. That was enoughmoney to set up and operate a scale model of the business with 60 orso customers in tony suburbs west of Boston. But after a little morethan a year, the fledgling company had burned through most of itscapital. DeMello had to sell the only asset he had acquired:information.
Large consumer-goods makers were willing to pay for knowledge ofthe growing home-delivery market. So DeMello set up a partnershipwith Andersen Consulting, based in Chicago, to coproduce a study ofthe home-shopping phenomenon using Streamline's customers as thesample. Andersen put together a consortium of nine manufacturers,including Gillette, Ocean Spray, and Procter & Gamble, that wouldbuy Streamline's data, and the company was suddenly $500,000 richer.
The partnership with Andersen raised Streamline's profile highenough to attract the interest of Saul Steinberg, chairman ofReliance Group Holdings Inc. and a billion-dollar financier in NewYork City. Steinberg was willing to pay $5 million for 40% ofDeMello's company. Now, nearly three years after setting out todemonstrate his idea, DeMello finally has the cash to make itoperational. "If you aren't well backed and you don't have thestrategic partners, this business is going to be tough," he says."Fortunately, we have both."
Markets and Competitors. Like interactive TV, flying cars,Esperanto, and Roger Clinton, home delivery is a recurring idea thathas never quite fulfilled its promise.
Maybe this time, though. Surveys reveal that among householdchores, many people rate grocery shopping only slightly less onerousthan cleaning. Home delivery is already on the rise. An annual surveyconducted by America's Research Group, in Charleston, S.C., revealedthat 9% of respondents were already using a home-delivery service, upfrom 6.9% in 1995. Estimates suggest that home delivery mighteventually capture as much as 20% of the estimated $400 billion spenton groceries each year. So the stakes are high.
Certainly, Streamline is not the first company to chase the fooddollar all the way home. In more genteel days, it was common forsmall stores to deliver grocery orders. Other companies deliveredmilk and meat. But those and similar services faded as supermarketssubsumed smaller stores and small towns became sprawling suburbs.
Two major trends helped to reawaken interest in home delivery.Starting in the mid-1970s, the growing ranks of working women hadless time to grocery shop, but they could order in by phone, socompanies such as Domino's Pizza flourished. The second trend, thegrowth of home computing, beginning a decade later, enabled harriedhomemakers to place orders more complex than a large pepperoni withextra cheese--a week's worth of groceries, for instance. Here's whereStreamline and its competitors come in.
Today a number of companies, including Peapod, based in Chicago,and Shopping Alternatives Inc. (SAI), based in Maryland and operatingin 19 cities across the country, will take orders, fill the bags atlocal supermarkets, and deliver them to people's homes. Peapod, forexample, has an exclusive relationship with one retailer in eachmarket. In Chicago, it's the Jewel-Osco supermarket chain; inNorthern California, it's Safeway; and the company has recentlyannounced deals with Stop & Shop in Boston and the Kroger Co. inColumbus, Ohio. Peapod and SAI provide consumers with software thatallows them to create customized shopping lists, view prices andspecials, and place orders. Peapod's software even lets users viewnutritional labels, sort groceries by price or by nutritionalcontent, find recipes, and send E-mail via the Internet. While bothservices allow customers to order groceries at any time, there aresome limits to deliveries. Peapod doesn't deliver on Mondays, and SAIdelivers only Monday through Friday.
